For the past eight months or so, I’ve managed an Amazon Seller account for my summer job at a small camera shop business, and I thought I would share some common misconceptions, observations, and my projections of what E-Commerce will look like in the future.
One of the most common misconceptions people have about Amazon.com is that Amazon sells everything on the site. I’ve dealt with countless customers who call our physical retail store because Amazon provides our phone number for customer service of products we ship to customers, and people genuinely believe we’re Amazon.com and proceed to tell us about their previous purchases (like how much their cat likes the cat food they bought from “us” two weeks ago, etc.). Amazon.com does sell a considerable array of products, but over 40% of their sales are from third-party sellers.
Amazon has put small online retail websites out of business. This is sometimes true, but it depends on the product. Amazon has become the #1 online retail store for one reason, the long-tail. Amazon’s philosophy is that your typical retail store can carry only a certain number of products with a considerable demand, and it’s not economical to carry products that sell 20 or so times a year. However, when your buying population is no longer confined to a small geographic area, it becomes profitable to carry very low demand products because a low demand is enough when spread across the entire country. Amazon.com cannot currently carry the full long-tail of every category of products, but third-party sellers can, which is why small niche businesses like the camera shop I work at are enormously successful on Amazon. This is a win-win for Amazon because Amazon receives commission from our sales, people know they can find this product on Amazon, and Amazon has a full snapshot of the buying market. So, if Amazon sees a product they aren’t currently carrying is tremendously popular, they can decide to carry the product and make the whole profit instead of just the commission.
The relationship between eBay and Amazon reminds me of the relationship between Myspace and Facebook. Both eBay and Amazon have the same function, you sell stuff on their site, but on eBay you have almost complete control of the presentation of your product (do you want a picture? do you want four? how do you want your listing to display in search results? you can structure your own description using HTML, and each listing looks almost completely different). Amazon, on the other hand, has a rigid structure and the locations of information for every product is exactly the same (sellers have no control over the organization of the product page). Myspace allows the user to write the HTML to present their page while Facebook is rigidly structured (you fill in the required fields, and shazam you’re done). While I feel that eBay has niche in its used product market, I don’t think eBay will ever grow into the online super-retailer that Amazon has become.
Amazon has to be the lowest priced listing for a product–even if that means selling it below cost. Amazon makes enough money from its other services and from its third-party sellers to make up for this apparently. For example, their Amazon Kindle is sold for $50 below cost (and is even on sale for below its retail price currently).
Although right now, Amazon is helping many small niche retailers, eventually (in the distant future) I believe Amazon will control the entire online market. Currently, Amazon typically takes about six months to realize that a product is extremely popular before they stock it, but there are very few products that have been listed for more than six months that Amazon isn’t a seller on. So, usually, we can make a lot of money on the product after it is released until Amazon becomes a seller and undercuts our price. Luckily, camera technology evolves so quickly that products phase in and out within two years, so we have plenty of opportunity to sell products as soon as they released. Also, camera and camera equipment manufacturers ship us new inventory before other retailers because we’re a small business, and they like to keep small business alive. But, ultimately, I believe Amazon will begin to pre-list products before they’ve come out and capture all pre-orders/be able to accurately predict the demand for a product and always have enough inventory to satisfy demand all while maintaining the lowest price. The amount of information they capture is simply amazing to me.
Feel free to ask me any questions if you them.